WASHINGTON 
An Obama administration plan to dissolve large, struggling financial firms rather than bail them out is encountering Republican resistance, Democratic doubts and only qualified support from regulators.

At a House Financial Services hearing Thursday, lawmakers from both parties worried that the proposal would give regulators and the executive branch unprecedented power.

"I'm not a man that fears this administration or you," Rep. Paul Kanjorski, D-Pa., told Treasury Secretary Timothy Geithner. "But I do fear the accumulation of power exercised by someone in the future that can be extraordinary."

Others argue that by singling out financial firms important to the economy, the government could inevitably set itself up to bail them out, and that even dismantling rather than rescuing them would take taxpayer money.

"The only authority we would have would be to manage their failure," he told the committee.

The debate comes as Congress works on legislation to respond to the financial crisis that clobbered Wall Street last year and fed the recession.

For the committee's chairman, Rep. Barney Frank, D-Mass., who wrote the proposal in close coordination with Treasury, the broad skepticism illustrates the delicate work needed to tackle such a big task.

The legislation would let federal regulators identify and monitor big financial firms and step in to wind them down before they collapse. If the government must use taxpayer money to dissolve a company, Treasury would recoup those costs by imposing a fee on firms with assets of at least $10 billion.

When to create such a fund has become a significant point of contention.

Frank and the administration recommended that any taxpayer infusion be recovered after the fact from large institutions.

But Sheila Bair, the head of the Federal Deposit Insurance Corp., which would conduct such a wind down, said the industry should pay into an insurance-like fund ahead of time. Rep. Luis Gutierrez, D-Ill., and AFL-CIO president Richard Trumka pressed for a similar structure.

Large financial firms, however, oppose an up-front payment. And Geithner said a prepaid fund would increase the temptation – or "moral hazard" – for companies to take excessive risks with the expectation that the government will step in to protect them.

"We don't want to create that expectation," Geithner said.

A key element of the proposal would assemble a council of regulators to identify large institutions whose businesses and transactions are so intertwined that their collapse would damage the economy.

The legislation envisions keeping the list of those firms secret, though Geithner acknowledged that existing disclosure requirements would make it hard to hide their identities.

The Federal Reserve would have additional powers to oversee those institutions and, if necessary, step in and regulate them.

Comptroller of the Currency John C. Dugan said that additional power the legislation would give the Fed could result in less effective banking standards and undermine the role of other bank regulators.

The FDIC, which currently oversees smaller insured depository institutions, could dissolve large failing institutions – an authority it now only holds over banks.

Regulators were powerless last year when investment bank Lehman Brothers and insurance giant American International Group neared collapse.

The government let Lehman Brothers fail, helping trigger the worst financial crisis in seven decades as nervous investors withdrew funds from money markets and credit lines froze. When it came to AIG, the Bush administration decided to swoop in with a hefty government bailout. Frank and Geithner said the latest proposal would prevent the government from having to decide between doing nothing and a costly rescue.

"Without the ability for the government to step in, manage the failure of a large firm and contain the risk of a fire spreading, we are resigned to repeat the experience of last fall," Geithner said.

Bank representatives told lawmakers they oppose putting the FDIC in charge of dismantling failing nonbank firms. Banks pay the FDIC to insure deposits, and they don't want their premiums to pay for the FDIC's new power.

"If our fund is strong and a major nonbank fails, there will be a strong temptation to unfairly raid the bank FDIC fund to pay for it," said Edward Yingling, president of the American Bankers Association, in written testimony.

Frank on Thursday also clashed on another financial regulation front. The House Energy and Commerce Committee wants to change the governing structure for a consumer finance protection agency that Frank's committee had already approved.

The Financial Services Committee wants a single director to run the agency. The energy committee on Thursday approved an amendment placing a five-member bipartisan commission in charge.

Frank said the change "will weaken the capacity of the agency to provide consumer protection."